N4 Entrepreneurship & Business Management


To refresh your memory answer the following questions: 1. What is your gross profit (R) per chicken in this example? 2. What is your cost of sales? 3. What is your gross profit percentage?


Example: You expect to sell at least 600 chickens during the month. In addition, no start-up capital was required to start this business.


Steps to determine the cost price of a product Calculations Step 1 Determine all potential variable costs per product. ...... R25 + R3 Step 2 Add up all the potential fixed costs of your business for a specific month. .............................................................. R7 800


Step 3 Add all the start-up costs. If you need to loan this money, calculate the monthly repayment amount ........ R0


Step 4 Add the loan repayment amount to your monthly fixed costs ......................................................................... R7 800 + R0 = R7 800


Step 5 Compile a sales forecast to determine how many products you will be able to sell in a month. .................. 600 chickens


Step 6 Multiply your variable cost per product with your sales forcast(the number of products you think you will be able to sell) ........................................................... 600 × R28 = R16 800


Step 7 Add your variable costs and fixed costs to determine your total monthly costs. ................................................. R16 800 × R7 800 = R6000


Conclusion: The total cost of this business is R24 600.


Before you determine the selling price, consider the following: • What does your competition charge for a chicken? • What is your target market prepared to pay? • Is there a convenience factor involved? • What is the total cost per chicken?


Confirming your selling price 1. After careful consideration you decide you would be able to sell your chickens for R48 each. 2. There are no additional convenience factors to keep in mind. 3. Your total cost per chicken is R24 600 ÷ 600 = R41.00 4. The break-even point of the business is:


Step 1 Calculate the gross profit percentage: R20 × R100 R48


1 = 41.67%


Step 2 Calculate the fixed costs R7 800


Step 3 Break-even point =


Fixed Costs GP%


= R7800 41.67%


= R18 718.50 Conclusion:


The selling price of R48 per chicken meets all the various pricing factor considerations and will ensure that you make a reasonable profit.


108


Formula: Gross Profit × R100 Sales


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